Question

George Hathaway, an electrician, entered into an agreement with a real estate management company to perform all maintenance of basic electrical systems and air-conditioning equipment in the apartment buildings under the company’s management. The agreement, which is subject to annual renewal, provides for the payment of a fixed fee of $6,420 on January 1 of each year plus amounts for parts and materials billed separately at the end of each month. Amounts billed at the end of one month are collected in the next month. During the first three months of 2011, George makes the following additional billings and cash collections:

Required:
1. Calculate the amount of cash-basis income reported for each of the first three months.
2. Calculate the amount of accrual-basis income reported for each of the first three months.
3. Why do decision-makers prefer the accrual basis of accounting?